Whether it's because of unemployment, a foreclosure or mounting holiday debt, many of you are looking to the new year to improve your credit score. More and more banks are pushing prepaid credit and debit cards as a way to meet that goal, but they're not right for everyone.
A prepaid credit card is much like a regular credit card, only the credit limit is lower than a regular card and users must first make a security deposit to use it. A prepaid debit card deducts funds from the amount of money deposited into the account associated with the card. "It's just basically debit card for people who can't qualify for credit card and they don't have a bank account so they don't have a debit card," said Mike Cherry, President of Consumer Credit Counseling Service of Springfield.
Getting a prepaid debit or credit card can help improve you credit score, and interest charges or late fees aren't possible but watch out for set up fees which range from about $5 to $10. Plus, additional fees are charged each time more cash is deposited into the prepaid credit card account. "The fes are extremely high so be weary. That should be a last resort," said Cherry. "If you can get an account, a debit card is way to go. It'll cost you no extra money to use a debit card."
If you do decide to get a prepaid card, be aware that you might not be able to use it for purchases where a fixed amount is deducted from your card each month. Many of these businesses don't accept them as a payment option because there's always the risk that there won't be any money in the account when it comes time to pay the bill.